4 I INTRODUCTION Relationships between pharmaceutical and device manufacturers and institutional providers, such as hospitals, medical schools or nursing homes, or their affiliated practitioners raise unique compliance issues. Relationships extend beyond the prescription or limited purchase of drugs/devices typical of physician/practitioner office settings to include: promotional activities, volume purchases, and special discounts purchase of services sponsorship of clinical trials grants charitable donations, and patient and community programs. Each such relationship must be justified independently and the interaction among the relationships monitored and managed. Management of relationships by manufacturers, however, may prove difficult because: institutional providers have various components (administration, purchasing department, pharmacy, research administration, CME staff, development office, medical staff/physician faculty, clinical staff and/or an affiliated nonprofit foundation) with differing levels of compliance awareness and different objectives; institutional providers may have longstanding relationships with manufacturers that create certain expectations or manufacturers and institutional providers have a shared specialization that creates mutual interests; institutional providers will often have compliance programs, but their compliance policies will not necessarily correspond to a manufacturer s compliance policies; and government enforcement agencies investigating relationships between manufacturers and institutional providers have typically sought settlements from manufacturers, creating a different risk analysis for manufacturers and providers. This presentation will provide an overview of the unique compliance issues raised by relationships between manufacturers and institutional providers or their affiliated practitioners. brunts lewis.doc

5 II OVERVIEW OF APPLICABLE LAWS AND GUIDANCE Relationships between and among pharmaceutical and device manufacturers, institutional providers, and practitioners can implicate a number of federal and state laws as well as industry codes of conduct. The significant laws and codes repeatedly implicated are discussed below. Other laws are referenced in the discussions of specific activities. A. Anti-Kickback Statute General Description. The federal anti-kickback statute, 42 U.S.C. 1320a-7b(b), imposes criminal penalties on any person that knowingly and willfully solicits, receives, offers, or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, to any person, in return for or to induce such person to do either of the following: refer an individual to a person for the furnishing or arranging for the furnishing of an item or service for which payment may be made in whole or in part under a federal health care program, or purchase, lease, order, or arrange for or recommend the purchasing, leasing, or ordering of any good, facility, service, or item for which payment may be made in whole or in part under a federal health care program. The anti-kickback statute is a specific intent statute. The statute is violated if a person: (1) knows that the anti-kickback law prohibits offering or paying remuneration to generate business; and (2) engages in prohibited conduct with the specific intent to disobey the law. The U.S. Department of Health and Human Services Office of the Inspector General ( OIG ) and some courts have taken the position that the intent requirement is met where one purpose of a payment is to induce referrals for, or purchases of, an item or service covered under a federal health program. Under the one purpose test, the fact that the parties may have had other good intentions in paying or receiving the payment is irrelevant. Application. Although the statute was traditionally interpreted as applying primarily to relationships between institutional providers or suppliers and practitioners in a position to generate referrals for the providers or suppliers, that interpretation changed with the issuance of a fraud alert that directly addressed pharmaceutical marketing activities and identifies activities potentially suspect under the anti-kickback statute. See 59 Fed. Reg (December 19, 1994). The early fraud alert was issued in response to information received about manufacturers that were providing product conversion payments to pharmacists, frequent flier mileage to physicians for completing a questionnaire for new patients placed on a drug or substantial research grants to physicians de minimis recordkeeping tasks. The activities identified as suspect included: brunts lewis.doc -2-

6 Any prize, gift or cash payment, coupon or bonus (e.g., airline discounts and related travel premiums), offered to physicians and/or suppliers (including pharmacies, mail order prescription drug companies and managed care organizations) in exchange for, or based on, prescribing or providing specific prescription products. These items are particularly suspect if based on value or volume of business generated for the drug company. Materials which offer cash or other benefits to pharmacists (or others in a position to recommend prescription drug products) in exchange for performing marketing tasks in the course of pharmacy practice related to Medicare or Medicaid. The marketing tasks may include sales-oriented educational or counseling contacts, or physician and/or patient outreach. Grants to physicians and clinicians for studies of prescription products when the studies are of questionable scientific value and require little or no actual scientific pursuit. The grants may nonetheless offer substantial benefits based on, or related to, use of the product. Any payment, including cash or other benefit, given to a patient, provider or supplier for changing a prescription, or recommending or requesting such a change, from one product to another, unless the payment is made fully consistent with an anti-kickback safe harbor. In the aftermath of the fraud alert and subsequent government enforcement actions, there has been widespread acceptance that the scope of the anti-kickback statute is extremely broad and potentially encompasses essentially every proposed financial interaction, whether or not actually implemented, between a pharmaceutical manufacturer and a provider or other individual or entity in a position to influence the drugs prescribed for, or provided to, a beneficiary of a federal health care program. For example, read literally, the statute would prohibit engaging a physician to speak about the benefits of a manufacturer s product ( remuneration...to recommend. ) Safe Harbors. Not all interactions encompassed by the broad scope of the statute, however, violate the statute. There are statutory exceptions to the prohibition for certain types of activities (such as discounts). The OIG also has the authority to establish regulatory safe harbors. The safe harbors describe activities that the government will not prosecute because the government has determined that these activities are unlikely to be abusive. The safe harbors are more likely to apply to price concessions provided in connection with the purchase of drugs or the purchase of expert consulting services than to promotional or other activities that provide one-sided value to customers and consumers. Facts-and-Circumstances Analysis. Arrangements that do not fall within an exception or safe harbor are not necessarily illegal, but will be subject to government scrutiny by the OIG. The government scrutiny will seek to determine whether the arrangements involve improper intent or are otherwise abusive (e.g., whether the arrangements adversely affect the quality of patient care). brunts lewis.doc -3-

7 In the OIG Compliance Program Guidance for Pharmaceutical Manufacturers ( OIG Compliance Guidance ), at 68 Fed. Reg , (May 5, 2003), the OIG described the aggravating considerations that identify those arrangements that may pose the greatest risk of prosecution. Those considerations include: Does the arrangement or practice have a potential to interfere with, or skew, clinical decision-making? Does it have a potential to undermine the clinical integrity of a formulary process? If the arrangement or practice involves providing information to decision-makers, prescribers, or patients, is the information complete, accurate, and not misleading? Does the arrangement or practice have a potential to increase costs to the federal health care programs, beneficiaries, or enrollees? Does the arrangement or practice have the potential to be a disguised discount to circumvent the Medicaid Rebate Program Best Price calculation? Does the arrangement or practice have a potential to increase the risk of overutilization or inappropriate utilization? Does the arrangement or practice raise patient safety or quality of care concerns? Guidance. Over the years, the OIG has issued guidance that identifies areas of concern or indicates how the OIG would apply the anti-kickback statute to particular circumstances. The primary sources of administrative guidance on analyzing arrangements under the anti-kickback statute, other than the regulations and commentary on the regulations, include: (1) OIG guidance on developing compliance programs for pharmaceutical manufacturers, (2) administrative bulletins (such as fraud alerts), and (3) advisory opinions. Government enforcement actions provide additional guidance. The allegations against TAP Pharmaceutical Products, Inc. in the civil qui tam action brought under the FCA with the Department of Justice included allegations that the manufacturer offered and paid illegal remuneration to certain physicians, physicians practices, health maintenance organizations and others in various forms as an inducement to those physicians to order, prescribe and administer Lupron to their patients: money, free drugs (samples), nominally priced drugs, discounted prices on one drug to induce placing another drug on formulary, educational grants, debt forgiveness, travel and entertainment (e.g., free trips and conferences), free consulting and audit services, employment as a consultant, payment of administrative fees, and VCRs and TVs. (Settlement, October, 2001) For guidance on the anti-kickback statute and its interpretation by the OIG, see the OIG regulations at 42 C.F.R and and visit the OIG web site at The website also includes Corporate Integrity Agreements entered into by various manufacturers as the result of settlements. brunts lewis.doc -4-

8 B. False Claim and Fraud Laws General Description. A number of federal criminal and civil laws prohibit individuals and entities from submitting (or causing others to submit) false information or claims for payment to the government or otherwise acting or conspiring to defraud the government. Examples: 18 U.S.C. 1001: Criminal sanctions for directly or indirectly submitting a false statement to the government. 18 U.S.C. 1035: an individual or entity may be criminally liable for false or fraudulent statements in connection with the delivery or payment of healthcare services. The primary statute applicable to false claims or information is the Federal False Claims Act at 31 U.S.C ( FCA ). A person may be subject to penalties under the FCA if the person knowingly submits (or causes another person to submit) false claims. The law is violated if person: submitted or caused to be submitted a claim for payment to the federal government; the claim was false or fraudulent; and the person acted knowingly. Knowing or knowingly for the purpose of enforcement means that a person has actual knowledge of the information; acts in deliberate ignorance of the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information. No proof of specific intent to defraud is required. Private persons, acting as whistleblowers, may bring an action under the FCA. Enforcement. In recent years, government enforcement agencies have alleged that violations of government price reporting obligations, the anti-kickback statute or the FDA prohibition on off-label promotion can constitute violations of the FCA. Examples include: In a civil qui tam action under FCA with the Department of Justice, Schering- Plough was alleged to have purchased unneeded utilization data, provided health management services below fair market value, provided interest-free loans and other discounted services in order to provide value to managed care plans. According to the allegations, value was provided to obtain formulary status for Claritin and the value was not included in best price. (Settlement, July 2004) In United States ex rel. Franklin v. Parke-Davis, 2003 WL (D. Mass. 2003), the court denied the manufacturer s request for summary judgment on the FCA claim that the manufacturer falsely and fraudulently promoted the drug brunts lewis.doc -5-

9 Neurontin to physicians for off-label uses resulting in Medicaid payment for noncovered Neurontin prescriptions. The opinion suggests that the truthful but unlawful promotion of an off-label use of a drug by a manufacturer to physicians could result in the submission of a false claim to state Medicaid programs in violation of the FCA. (The proceeding arose from the civil qui tam action under FCA with the Department of Justice involving Pfizer s Neurontin that was settled in May, 2004.) In the Department of Justice investigations of Abbott Laboratories (Ross Products Division) and Novartis, the government alleged that the manufacturers counseled durable medical equipment suppliers to submit to Medicare unbundled claims for enteral feeding products, despite receiving a discounted bundled rate. The government also alleged that the manufacturers structured the transactions and provided advice to disguise discounts. (Abbott Laboratories Settlement, July, 2003 and Novartis Settlement, February, 2005) C. FDA Promotional Restrictions General Description. Federal law prohibits manufacturers from receiving, introducing, or delivering for introduction into interstate commerce any drug or device that is misbranded. 21 U.S.C. 331(a). A drug or device is misbranded if (among other circumstances): its labeling (printed/graphic matter on or accompanying drug) is false or misleading; or its advertising (paid message in third-party medium) does not provide a true statement including a brief summary of side effects, contraindications, and effectiveness. 21 U.S.C. 352 (a), (n), (q), and (r). (Note that the requirements on advertisements apply only to drugs and restricted devices. A device may be restricted (by regulation or by the order for approval of a premarket approval application) to sale, distribution or use only upon the written or oral authorization of an appropriately licensed practitioner or upon other conditions. 21 U.S.C. 360e(d) and (e). Most Class III devices are restricted devices.) Under the prohibition, manufacturers (or their agents) are prohibited from promoting off-label uses of their products (i.e., no suggestion of use for indications or populations not in the approved labeling). Manufacturers also may not disseminate advertisements that are false, lacking in fair balance, or otherwise misleading. Exceptions. The Food and Drug Administration ( FDA ) does, however, permit dissemination of off-label information by manufacturers under two exceptions. Bona Fide Scientific Dialogue. FDA allows manufacturers to discuss information pertaining to off-label uses of drugs through scientific dialogue that is not conducted in a promotional context. For example, with regard to investigational new drugs, the agency does not view the restrictions imposed on brunts lewis.doc -6-

10 pre-approval promotion [as] intended to restrict the full exchange of scientific information concerning [a] drug, including dissemination of scientific findings in scientific or lay media. See 21 C.F.R To further clarify this policy, FDA issued a Guidance Document in 1994 stating that manufacturers could not promote investigational drug products through commercial exhibits, but could display information about such drugs at scientific exhibits. U.S. Food and Drug Administration, Center for Drug Evaluation and Research, Division of Drug Marketing, Advertising, and Communications, Guidance: Pre-approval Promotion (Apr. 1994). According to FDA, these scientific exhibits would have to be clearly separated from the commercial exhibit area, be staffed only by scientists, and be devoid of commercial materials for distribution. Unsolicited Requests for Information. The FDA allows manufacturers to respond to unsolicited requests for information about unapproved uses. FDA recognized this exception as early as 1982, when the agency declared that it [would] not regulate as labeling any and all unsolicited requests received from outside the company for information about a drug manufactured, distributed, or repackaged by the company. See U.S. Food and Drug Administration, Center for Drug Evaluation and Research, Division of Drug Marketing, Advertising, and Communications, Position on the Concept of Solicited and Unsolicited Requests (Apr. 22, 1982). The FDA there indicated that the agency considered requests for drug information from scientists as personal communication between the requestor and the firm that represented the full exchange of valid and legitimate information about the drug. Id. The FDA maintained that the policy did not apply to an exchange precipitated or expressly encouraged by a sales representative... specifically for information about the drug that is inconsistent with the approved labeling. Id. In fact, the agency strongly recommended that manufacturers include in a response to an unsolicited request some positive statement consistent with the approved labeling about the drug s use or dosage... and also include a reference to accompanying full prescribing information. Id. The FDA affirmed its policy on unsolicited requests in 1994, and elaborated that the agency would not consider as promotional labeling individual, nonpromotional responses by drug companies to specific, unsolicited requests for information, provided that: (1) the sponsor maintains documentation concerning the nature of the requests; and (2) there is no pattern of repeated dissemination of materials or no evidence that such requests were solicited by the sponsor (e.g., preparation of material for routine dissemination). See U.S. Food and Drug Administration, Center for Drug Evaluation and Research, Division of Drug Marketing, Advertising, and Communications, Current Issues and Procedures, (Apr. 1994). Although these statements were issued by the Center for Drug Evaluation and Research, the FDA described its policy later that year in a brunts lewis.doc -7-

11 Federal Register issuance that speaks to drug and device promotion. The policy is described as: Under current FDA policy, companies may also disseminate information on unapproved uses in response to unsolicited requests for scientific information from health care professionals. Scientific departments within regulated companies generally maintain a large body of information on their products. When health care professionals request such information, companies can provide responsive, nonpromotional, balanced, scientific information, which may include information on unapproved uses, without subjecting their products to regulation based on the information. This policy permits companies to inform health care professionals about the general body of information available from the company. See 59 Fed. Reg. at (Nov. 18, 1994). As part of an amendment to the statute explicitly permitting the dissemination of journal articles on off-label use under certain circumstances, the Food Drug and Cosmetic Act ( FDCA ) now includes a specific reference to the policy. 21 U.S.C. 360aaa-6(a), provides that Nothing in section 551 [the procedure allowing certain disseminations] shall be construed as prohibiting a manufacturer from disseminating information in response to an unsolicited request from a health care practitioner. Manufacturers may communicate information on off-label uses to physicians and other providers under this policy. Manufacturer practices vary, with some manufacturers requiring all responses to unsolicitated requests for information to come from a central medical affairs office, while other companies engage field medical personnel for such requests or even permit sales representatives to respond to questions. Manufacturers often train sales representatives on recent literature and other developments concerning off-label uses so that they have the knowledge to recognize questions that involve off-label information and ensure the questions are directed to the appropriate medical affairs department or medical field liaison. Application to Physicians. The prohibition on off-label promotion does not apply to physicians unless physicians operate as agents of a manufacturer (e.g., as a speaker in a manufacturer educational program). Physicians may otherwise discuss off-label uses and prescribe or use products for off-label uses. The practice of medicine is not regulated by the FDA. As a result, a manufacturer s customers can discuss aspects of the manufacturer s products that the manufacturers cannot affirmatively address. Enforcement. Government enforcement agencies have pursued actions against manufacturers for off-label promotion although such actions typically alleged violations of other laws (such as the anti-kickback statute or FCA in connection with the off-label promotion). Allegations have included: physicians and other prescribers were given brunts lewis.doc -8-

12 inducements to prescribe off-label; or physicians and other providers were improperly encouraged to submit claims and receive payment for drugs used off-label (i.e., when the third party payor did not cover those off-label uses). Example: In a civil qui tam action under FCA with the Department of Justice, a company acquired by Pfizer (Warner-Lambert) was alleged to have induced doctors to prescribe and seek payment for off-label uses of Neurontin (including uses not covered by third party payors). Alleged bad practices included flying doctors to Hawaii and the Atlanta Olympics, paying consulting fees, and providing lavish dinners during discussions of drug. (Settlement, May 2004) Although enforcement has focused on pharmaceutical manufacturers, government enforcement agencies may apply similar legal theories to device manufacturers. See Ross Kerber, U.S. Picking Up Pace of Device Inquiries, Boston Globe (May 19, 2004) (citing recent settlement of Orthofix International of allegations that company billed Medicare and Medicaid for off-label uses of a device). D. Federal Privacy Law General Description. The Health Insurance Portability and Accountability Act of 1996 ( HIPAA ) and its implementing regulations (45 C.F.R. Part 160 and 45 C.F.R. Part 164) control the use and disclosure of individually identifiable health information by covered entities (specifically, health care providers, health plans, and health care clearinghouses) or their business associates. Such information is protected health information. Covered entities (such as providers) may not use or disclose protected health information unless: The covered entity is using or disclosing the information to provide treatment, to obtain payment for treatment or to conduct routine health care operations; or The subject of the information has specifically authorized the covered entity to use or disclose the information by signing a written authorization; or The use or disclosure of the information meets a specific exception to the general prohibition (e.g.) disclosures required by law and certain FDA-related disclosures. Applicability. HIPAA privacy regulations do not directly apply to pharmaceutical or device manufacturers in their capacity as manufacturers. Most manufacturers will not be business associates of providers simply because the sales representatives sell to providers. (Note, however, that some providers may view device manufacturers as business associates if the manufacturer services devices and those devices contain protected health information.) HIPAA privacy regulations will nonetheless affect manufacturer relationships with institutional providers because those providers (and their affiliated practitioners) will be covered entities. Because the HIPAA privacy regulations and clarifying guidance do not focus on manufacturers and their activities, brunts lewis.doc -9-

13 covered entities, in order to ensure compliance, may adopt a conservative interpretation of the HIPAA privacy requirements. Likewise, concern with adverse publicity and with the implications of state privacy laws may encourage manufacturers to impose limitations on sales representative activities that might implicate patient privacy. Access to Providers. HIPAA does not prohibit covered entities from allowing sales representatives to visit hospitals or physician offices to discuss their products or restock drug samples. Interactions with Providers. The disclosure of patient information in interactions between providers and sales representatives or the use by providers of patient information to identify patients for educational or marketing programs may or may not be permitted depending on the circumstances. Note that ambiguities in interpretations exist. Some disclosures may be permissible without a patient authorization: Incidental disclosure of information may be permitted where appropriate safeguards exist (e.g., sales representative in a hospital overhears a conversation). A health care provider may discuss drugs/devices and their experiences using the products with sales representatives so long as protected health information is not disclosed. A health care provider may disclose protected health information to a third party (including manufacturers or their representatives) for treatment purposes. Treatment includes the coordination or management of health care and related services for a particular patient. When a health care provider discloses protected health information to representatives so they can guide the health care provider and patient in the proper use of a drug or device, the disclosure may be permitted at treatment. The disclosure of protected health information to enroll a patient in a patient assistance program can be considered part of the health care provider s management of that patient s care and may be permitted as a disclosure for treatment purposes. Patients may disclose information directly to manufacturers/sales representatives. Providers may market products to patients in face-to-face communications. Some disclosures are likely not permissible without an authorization: Reviews of patient charts or records. brunts lewis.doc -10-

14 Disclosure of protected health information in morbidity and mortality conferences, grand rounds, tumor boards, and other educational or quality assurance presentations (where sales representative is there for his or her own education). Use and disclosure of patient information by providers to identify targets for marketing (other than such marketing conducted through face-to-face communications between provider and patient). FDA Filings. Providers can disclose information directly to the FDA or a manufacturer if required by the FDA requirements even if the subject of the information has not authorized the disclosure. These disclosures are permitted by specific exceptions to the general prohibition on disclosures: A provider may disclose protected health information when the disclosure is required by law (such as FDA laws). A provider may disclose protected health information to agencies such as the FDA for oversight activities (such as audits or investigations). A provider may disclose protected health information to a manufacturer or its agents for activities related to the quality, safety or effectiveness of a manufacturer s product subject to FDA regulation, including: to report adverse events, product defects, problems, or biological product deviations; to track FDA-regulated products; to enable product recalls, repairs, or replacement (including locating and notifying individuals who have received products of product recalls, withdrawals, or other problems); or to conduct postmarketing surveillance to comply with requirements. Research. Protected health information held by a health care provider may only be used or disclosed for research purposes with the authorization of the subject, pursuant to a permissible waiver of the authorization requirement, pursuant to an exception or under a limited data set agreement. (These requirements are discussed in detail in Section III.B (Purchased Services) and Section III.C (Clinical Trial Sponsorship).) The Office of Civil Rights within the U.S. Department of Health and Human Services ( HHS ) has provided extensive guidance on the HIPAA regulations on its website at brunts lewis.doc -11-

15 E. Industry Codes of Conduct A number of voluntary industry codes apply to manufacturer relationships with institutional providers or their affiliated practitioners. These codes have no independent legal significance and compliance with the codes will not protect a manufacturer from scrutiny and potential prosecution. The codes, however, define general industry practices. Interactions with Healthcare Professionals. Voluntary codes developed by the American Medical Association ( AMA ), Pharmaceutical Manufacturers of America ( PhRMA ), and the Advanced Medical Technology Association ( AdvaMed ) all address interactions between manufacturers and health care professionals. These codes attempt to preserve opportunities for interactions between manufacturer representatives and health care professionals, while limiting those practices which could have a corrupting influence on the professional. The codes therefore focus on limiting the financial benefit provided to professionals (outside of fair market value payments for services) and on limiting social interactions to those interactions that facilitate genuine informational exchange. The codes, like the anti-kickback statute, thus seek to prevent corruption of clinical decision-making (either in the choice of vendor or product). The OIG has indicated, with respect to the PhRMA Code on Interactions with Healthcare Professionals, that compliance will substantially reduce the risk of fraud and abuse and help demonstrate a good faith effort to comply with the applicable federal health care program requirements. Note, however, the codes generally focus on relationships with individual healthcare professionals. AMA Ethical Opinion E Gifts to Physicians From Industry. The ethical opinion establishes guidelines for gifts given to physicians by companies in the pharmaceutical, device, and medical equipment industries to avoid the acceptance of inappropriate gifts. 1 Key guidelines address: educational and practice-related items, third party educational or professional meetings, consultants, scholarships and educational funds, and independence of decision making. PhRMA Code on Interactions with Healthcare Professionals. The PhRMA Code is a voluntary code of conduct to establish standards for interactions between manufacturers and healthcare professionals. This information is posted on the PhRMA website at: pdf. The PhRMA Code provides general guidelines as well as questions and answers addressing specific practices. Key guidelines address: basis of 1 A copy of the opinion is available at: assn.org/apps/pf_new/pf_online?f_n=browse&doc=policyfiles/hne/e HTM&&s_t=&st_p=&nth=1&prev_pol=policyfiles/HnE/E-7.05.HTM&nxt_pol=policyfiles/HnE/E HTM& Questions and answers clarifying the opinion are available at: assn.org/apps/pf_new/pf_online?f_n=browse&doc=policyfiles/hne/e HTM&&s_t=&st_p=&nth=1&prev_pol=policyfiles/HnE/E HTM&nxt_pol=policyfiles/HnE/E HTM& brunts lewis.doc -12-

16 interactions, pharmaceutical company presentations, third party educational or professional meetings, consultants, speaker training meetings, scholarships and educational funds, and educational and practice-related items. AdvaMed Code of Ethics on Interactions with Healthcare Professionals. The AdvaMed Code is a voluntary code of conduct applicable to medical device manufacturers and their interactions with healthcare professionals and others in a position to generate business for the manufacturers. This information is posted on the AdvaMed website at: Key guidelines address: manufacturer-sponsored meetings, third party conferences, sales and promotional meetings, consultants, gifts, reimbursement and technical information, and charitable donations. Manufacturers may make donations to charitable organizations for a charitable purpose, such as independent medical research, indigent care, patient education and public education, and sponsorship of events where proceeds are charitable. Although the three codes are generally consistent, there are differences. A chart comparing the AMA, PhRMA and AdvaMed codes on interactions with healthcare professionals is attached as Attachment A. PhRMA Code Principles on Conduct of Clinical Trials and Communication of Clinical Trial Results. The PhRMA Principles address various issues related to clinical trial research. The principles are posted on the PhRMA website at: The PhRMA Principles provide that: Clinical trials are conducted in accordance with all applicable laws and regulations, as well as recognized principles of good clinical practice. The independence of clinical investigators and others involved in clinical research is respected so they can exercise their own decision-making authority to protect research participants. Compensation to clinical investigators will be reasonable and based on their work. Compensation will not paid in the stock of the sponsor or otherwise tied to the outcome of the trial. Trials must be reviewed by Institutional Review Boards ( IRBs ) or Ethics Committees that have the right to disapprove, require changes, or approve the study. All participation in a clinical trial is based on informed consent, freely given without coercion. There should be timely communication of meaningful study results, regardless of the outcome of the study. The results must be reported in an objective, accurate, balanced, and complete manner, with a discussion of the limitations of the study. Study sponsors should not deny publication. brunts lewis.doc -13-

17 Those (and only those) who make substantial contributions to a publication should receive acknowledgement as an author of, or contributor to, the publication. III DISCUSSION OF SPECIFIC ACTIVITIES A. Drug and Device Sales Activities 1. General Relationship Sales and promotional activities involving institutional providers raise a number of issues. Institutional providers are often valuable customers because the providers purchase large volumes of drugs or devices. Purchasing decisions are typically made by a limited number of provider representatives. For example, the pharmacy director or formulary committee will determine drug purchases, while influential physicians in clinical specialties will determine the medical devices used in those specialties. Interactions with these representatives are important to promoting sales of a product but often involve heightened sensitivity to avoid the appearance of impropriety. Institutional providers may participate in group purchasing organizations, which offer these providers access to special discounts, and limit the ability of manufacturers to negotiate discounts independently with the institutions. Concerns may arise if manufacturers seek to overcome this obstacle by providing added-value to providers (if the added value is perceived as an additional discount). A manufacturer may have a number of relationships with an institutional provider outside the product sales context and may feel pressure to maintain those relationships in order to preserve good relations with the institutional provider. Institutional providers may often provide a setting for manufacturer sales representatives to have access to physicians on the medical staff and other practitioners (although hospitals are increasingly restricting access). These practitioners may view sales representatives as the primary point of contact for the manufacturer and seek to obtain answers about the products and their uses (both onlabel and off-label) from the sales representatives. Focused on scientific exchange, the practitioners may pressure a sales representative to provide more information than permissible under the manufacturer s policies. Practitioners may have different views of compliant behavior than institutional providers and therefore different expectations. 2. Compliance Concerns The primary concern with sales activities is the appropriate treatment of discounts. Discounts largely raise anti-kickback and false claims concerns. Concerns primarily relate to the fact that other financial relationships between manufacturers and providers could be interpreted as an undisclosed discount, but there are certain types of discounts that may raise specific concerns. In addition, for pharmaceutical manufacturers, certain discount arrangements may raise concerns under federal pricing programs. brunts lewis.doc -14-

18 More generally, however, promotional activities that provide value to physicians or provider representatives with purchasing authority should comply with the PhRMA or AdvaMed codes of conduct to minimize concerns about improper influence. Manufacturers must also be ready to address differences in compliance expectations and communicate compliance policies to institutional providers and develop compliant solutions. Manufacturers that bend the rules to accommodate customers demands are in a difficult position in creating an culture of compliance when customer requirements undermine strict conformity to the PhRMA Code or implementing policy. Manufacturers should also implement policies to ensure that sales representatives respond appropriately to off-label inquiries by ensuring physicians have ready access to medical liaisons or to the manufacturer s medical affairs department. a. Anti-Kickback Statute Discounts are necessarily an inducement to encourage the purchase of a drug or device. Discounts, however, represent one type of activity that receives protection under certain circumstances and is therefore permitted by the anti-kickback statute. Discounts are protected because the government recognizes that public policy generally favors open and legitimate price competition in the health care industry because that competition can benefit federal health care programs. The discount safe harbor, at 42 CFR (h)(5), protects discounts on items and services reimbursed under a federal health care program. The term discount is defined as a reduction in the amount a buyer is charged for an item or service based on an arms-length transaction. Discount includes rebates and other discounts not given at the time of sale. Discount excludes cash payments or equivalents, supplying one good or service without charge or at a reduced charge to induce the purchase of a different good or service unless both are reimbursed by federal health care programs pursuant to the same methodology (i.e., the same global payment), a reduction in price applicable to one payer but not to federal health care programs, a routine reduction or waiver of any coinsurance or deductible amount, warranties, services provided in accordance with a personal or management services contract, or other remuneration not explicitly defined as a discount. The OIG has emphasized that the discount must be in the form of a reduction in price given at the time of sale or set at the time of sale. See OIG Compliance Guidance, supra, at The provision of benefits cannot later be characterized as a discount on a purchase in order to access the protection of the safe harbor. The discount may qualify for protection when offered or received by buyers, sellers, or offerors (which are not sellers but promote the purchase of an item or service by a buyer at a reduced price) if certain requirements are met. Obligations that sellers and offerors must meet vary depending upon the type of buyer, but can generally be summarized as follows: brunts lewis.doc -15-

19 Medicare or Medicaid managed care plans (which does not include prescription drug plans): No obligation to disclose discount. Providers that report costs on a cost report: Discount must be disclosed on invoice or similar statement (and documentation provided if discount not known at time of sale). Buyer must be put on notice of obligation to report discount; and nothing must be done to impede buyer from fulfilling its obligations. Other providers/providers that submit claims for payment: Discount must be disclosed on invoice or similar statement and documentation provided. Buyer must be put on notice of obligation to report discount; and nothing must be done to impede buyer from fulfilling its obligations. A chart describing the obligations of buyers, sellers and offerors in detail is attached as Attachment B. b. False Claims Act Discounts offered to institutional providers implicate the federal false claims and fraud laws. Many institutional providers report costs on cost reports to Medicare or Medicaid even if payment is no longer based on reasonable costs incurred by the provider and have an obligation to report costs accurately. Manufacturers must provide accurate information in order for the providers to do so. Pharmaceutical manufacturers must also track and report discounts accurately under various government pricing programs, many of which require that the price reported include all applicable discounts. Examples include: Medicaid Drug Rebate Program (42 U.S.C. 1396r-8). A manufacturer must quarterly report price data to the Centers for Medicare & Medicaid Services ( CMS ). Data includes the best price for each drug. Best price is the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity within the United States with certain limited exceptions and must be inclusive of cash discounts, free goods that are contingent on any purchase requirement, volume discounts, and rebates (other than rebates under [the Medicaid rebate program]). Medicare Part B Average Sales Price (42 U.S.C. 1395w-3a). Manufacturers must report quarterly the average sales price ( ASP ) for each drug covered under Medicare Part B for all purchasers in the United States (excluding purchases exempt from the Medicaid best price calculation). The calculation of the sales price includes volume discounts, prompt pay discounts, cash discounts, free goods that are contingent on any purchase requirement, and chargebacks and rebates (other than rebates under the Medicaid drug rebate program). brunts lewis.doc -16-

20 Federal Ceiling Price (38 U.S.C. 1826). Manufacturers must make covered outpatient drugs available to certain federal agencies (Department of Veterans Affairs, the Public Health Service, the Department of Defense and the Coast Guard) at discounted prices, known as the federal ceiling price. The federal ceiling price reflects a minimum discount of 24% off the non-federal average manufacturer price or non-famp. Non-FAMP is specifically defined as the weighted average price of a single form and dosage unit of the drug that is paid by wholesalers in the United States to the manufacturer, taking into account any cash discounts or similar price reductions during that period, but not taking into account--(a) any prices paid by the Federal Government; or (B) any prices found by the Secretary to be merely nominal in amount. 3. Compliance Issues Discounts. Concerns primarily relate to the fact that other financial relationships between manufacturers and providers could be interpreted as an undisclosed discount on products purchased. There are also certain types of discount that raise particular issues. In the OIG Compliance Guidance, the OIG emphasized that any remuneration from a manufacturer provided to a purchaser that is expressly or impliedly related to a sale potentially implicates the anti-kickback statute and should be carefully reviewed. Examples of remuneration in connection with a sale include, but are not limited to, prebates and upfront payments, other free or reduced-price goods or services, and payments to cover the costs of converting from a competitor's product. OIG Compliance Guidance, supra, at Upfront Payments/Signing Bonuses. Upfront payments and signing bonuses are difficult to conform to the discount safe harbor unless the payments are applied to specific purchases (e.g., payments apply to first year purchases with net price for each purchase dependent upon the number of purchases). The OIG generally views such payments as suspect. See OIG Letter on Upfront Rebates, Prebates and Signing Bonuses (July 7, 2000). Credit Memos. Credit memos provided in lieu of cash discounts raise cost reporting issues because the credits may be earned based on the purchase of certain products, but are applied to reduce the purchase price of other products. Any agreement should clearly identify the credit as a discount and should be clear on the allocation of the discount. Payments/Discounts on Next Generation Products. Payment or discount arrangements on next generation products (such as advances in device technology or new drugs replacing drugs about to lose patent protection) may provoke scrutiny, particularly if the new product is more expensive and its superior efficacy unclear. Payments based on shifting market share from the old to new product are more likely to provoke challenge than volume discounts on the new product. brunts lewis.doc -17-

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